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Date : May 29th, 2014

To : Prof. Ran Duchin


From : Do you want to build a stock, man? (Angie Andriani, Liting Ruan, Adreana Song)
Subject : Stock Case Write Up

Summary
Our selected portfolio has earned a return of 0.34% overall. Fortunately, the end value is not less than our
initial investment. However, we still fall behind compared to other market funds. In this memo, we will
illustrate the events that have affected our portfolios performance followed by a detailed analysis, and the
lessons we have learned.

Firm-Specific Events
For the first six weeks since we invested in our portfolio, we had been pessimistic about our portfolio
value that kept fluctuating in a troubling pace. Here are some market or firm specific events that we
believe have affected our portfolio performance:
Google (GOOG)
In the evening of May 20th, Google was named the world's most valuable brand according to
research firm Millward Brown's "2014 BrandZ Top 100" ranking. Since then, their stock price per
share has increased by 6.8%. Prior to the news, Google stock had been steadily decreasing.
Amazon (AMZN)
The stock price of Amazon has been decreasing continuously in general. The factor that might
have contributed to the decrease is their failure to gain public praise on their new product, Fire
TV.
Other major changes that are worth noting occurred on May 20th and May 27th. On May 20th,
their stock price decreased significantly because of their decision to remove Hachettes books
from Amazons shelf. On May 27th, their closing price increased by 3.2% after they have
defended themselves against the criticism regarding their decision to remove Hachette's books
largely.
Disney (DIS)
Disneys stock has been steadily increasing during the past seven weeks. The stock has
experienced a major increase of 3.04% for the week beginning April 29th. During that week,
Disney released a Q2 earning of $1.92 billion which is 0.41 billion higher than the same period
last year. People believe that this boost was related to the continued strength of the blockbuster
film Frozen.
Other than that, their stock price noticeably increased following the announcement about the cast
arrangement for the upcoming Star Wars movie on April 29th. People got excited about the
beloved original cast back on the screen. Moreover, the Disney Resort which is under
construction in Shanghai took another big step ahead. The company has decided to invest more
to speed up the expansion. The new resort is expected to welcome an increasing number of
tourists on 2015.
Coca Cola (KO)
Coca Colas quarterly report was released on April 15th. Its shares rose 3.7% to $40.18 as the
figures looked promising.
On May 13th, Coca Cola purchased 16.7 million Keurig Green Mountain shares and increased its
stake in the latter company to 16%. This raised speculation that Coca Cola would take over
Keurig Green Mountain in order to diversify its products as soft drinks sales decline. The market
seemed to be excited about this news, resulting in increase in Coca Cola stock price by 1% on
the same day.
Portfolio Performance
Comparison to the Equity Market
Compared to VFINX, QQQ, and VHGEX, our portfolio has the highest standard deviation yet the
lowest average return. This tells us that that our portfolio is way more volatile and risky than the
three funds.
We believe that the high standard deviation is due to the fact that we invest 74.4% of our portfolio
in two big technology companies, Amazon and Google, which has the correlation coefficient of
0.53. Unfortunately, Amazon has not been doing well for the past two months, leading to a
significant loss in our investment. On the other hand, despite the continuous declination earlier,
Googles stock price has gone up beyond our initial buying price on the last closing day. This
shows how these two stocks affect our portfolio considerably given their high volatility.
At the end of the day, the increase in Google, Disney, and Coca Cola was cancelled out by the
drop in Amazons stock price. We believe that our inferior performance is largely due to the lack
of diversification in our portfolio.
Risk and Volatility
There are quite a number of factors that affect the stock market in general, such as government
policies, economic climate, and geopolitical issues. The Federal Reserves quantitative easing
seems to have resulted in lingering nervousness and volatility in the US equity market until today
(http://www.theguardian.com/business/2014/apr/10/tech-stocks-drop-markets-worry-fed-
stimulus).
However, if we look at individual stock performance, every step a company takes could impact its
stock price. The firm-specific events we discussed above show how quickly the stock price made
response to the strategies a firm took.
Market expectations and evaluations are also big influences. Googles newly earned reputation
as the worlds most valuable brand and the markets lack of excitement about Amazons new Fire
TV prove the impact of market evaluations by itself.
But in the end, a firms stock price would reflect the companys performance. The release of
earnings reports, in our case Coca Colas, obviously influenced the companys stock value. Stock
prices are established based on the expectations for the future earnings power of a firm. As
investors get to see the reality of their expectations through earnings reports, stock prices adjust
to this reality.

Lessons Learned
Dont put your eggs in the same basket; it is better to invest in funds than picking out your own
investment if you dont know have enough knowledge in it.
An investor should follow the news on the company he/she has invested in; those information
often--if not always--reflect the price of the stock.

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